M/s. M.M.Forgings Ltd., CHENNAI v. DCIT, CHENNAI

N THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN JUDICIAL MEMBER .. I.T.A. NO. 675/MDS/2010 ASSESSMENT YEAR : 2007-08 M/S. M.M. FORGINGS LTD. 95 ANNA SALAI CHENNAI-600 032. V. THE ADDL. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE- IV CHENNAI. (PAN:AAACM2164L) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PHILIP GEORGE RESPONDENT BY: SHRI P.B. SEKARAN O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS)-V CHENNAI IN ITA NO. 317/09-10 DATED 22-02-2010 FOR THE ASSESSMENT YEAR 2007-08. 2. SHRI PHILIP GEORGE ADVOCATE REPRESENTED ON BEHA LF OF THE ASSESSEE AND SHRI P.B. SEKARAN LEARNED CIT-DR REPRESENTED ON BE HALF OF THE REVENUE. 3. GROUNDS 2 TO 2.3 OF THE ASSESSEES APPEAL ARE AG AINST THE ACTION OF THE LEARNED CIT(A) IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO THE ADDITIONAL I.T.A. NO.675/MDS/2010 2 DEPRECIATION ON ELECTRIFICATION. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF FORGINGS. IN THE COURSE OF ASSESSMENT THE ASSESSIN G OFFICER HAD DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION ON THE ELECTRIFICA TION ON THE GROUND THAT THE ELECTRIFICATION HAS NOTHING TO DO WITH THE MANUFACT URE OR PRODUCTION OF ANY ARTICLE OR THING. IT WAS THE SUBMISSION THAT THE ELECTRIFI CATION WAS PART OF THE PLANT AND MACHINERY AND IT WAS NOT A SEPARATE ITEM. THE LEAR NED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE ANNEXURES TO THE ASSESSMENT ORDER WHEREIN THE ELECTRIFICATION HAS BEEN SHOWN AS PART OF THE PLANT BUT AS A SEPARATE ITEM. IT WAS THE FURTHER SUBMISSION THAT AS THE EL ECTRIFICATION WAS PART OF THE PLANT AND MACHINERY THE SAME WAS ENTITLED TO THE AD DITIONAL CLAIM OF DEPRECIATION OF 20% U/S. 32(1)(IIA) OF THE INCOME T AX ACT 1961. 4. IN REPLY THE LEARNED DR SUBMITTED THAT IF THE E LECTRIFICATION WAS AN INTEGRAL PART OF THE PLANT AND MACHINERY THEN THE DEPRECIATION IS AVAILABLE. BUT IF THE ELECTRIFICATION WAS NOT IN RELATION TO THE P LANT AND MACHINERY BUT WAS A STAND ALONE ITEM ADDITIONAL DEPRECIATION WAS NOT A VAILABLE AS SUCH STAND ALONE ELECTRIFICATION WAS NOT DOING ANY MANUFACTURE OR PR ODUCTION OF ANY ARTICLE OR THING. 5. IN REPLY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAD DISALLOWED ONLY THE ADDITIONA L DEPRECIATION IN RESPECT OF THE ELECTRIFICATION RELATED TO THE PLANT AND MACHIN ERY. I.T.A. NO.675/MDS/2010 3 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET WE MAY STATE THAT THE TERM ELECTRIFICATION IS DIFFERENT FROM T HE TERM ELECTRICAL FITTINGS. ELECTRIFICATION IS REQUIRED FOR PROVIDING ELECTRICAL POWER TO VARIOUS EQUIPMENTS OF THE PLANT AND MACHINERY. IT WOULD INCLUDE ITEMS SU CH AS WIRES SWITCHES MCBS SO ON AND SO FORTH. ELECTRICAL FITTINGS ARE IN THE NATURE OF LIGHTS FANS ETC. CERTAIN ELECTRICAL FITTINGS ARE REQUIRED EVEN IN TH E FACTORY PREMISES INSOFAR AS LIGHTS EXHAUST FANS SO ON AND SO FORTH DEPENDING UPON THE REQUIREMENT OF EACH TYPE OF MANUFACTURE OR PRODUCTION OR THE NATURE OF THE INDUSTRY. IF THE ELECTRICAL FITTINGS ARE A REQUISITE COMPONENT OF THE PLANT AND MACHINERY OR THE FACTORY WHERE THE ACTUAL MANUFACTURING OR PROCESSING OF THE ARTICLE OR THING IS DONE OBVIOUSLY SUCH ELECTRIFICATION WOULD BE ENTITLED T O THE ADDITIONAL DEPRECIATION AS IT WOULD BE TREATED AS PART OF THE PLANT AND MACHIN ERY. IN THE SAME MANNER IF THE ELECTRICAL FITTINGS OR ELECTRIFICATION IS NOT C ONNECTED WITH THE ACTUAL MANUFACTURING PROCESS INSOFAR AS IT IS IN THE OFFIC E OR IN THE SALES DEPOT ETC. THEN AS THE SAME ARE NOT CONNECTED WITH THE MANUFACTURIN G OR PROCESSING OF THE ARTICLE OR THING IT WOULD NOT BE ENTITLED TO THE A DDITIONAL DEPRECIATION. HERE IN THE PRESENT CASE AS IT IS NOTICED THAT THE ELECTRIF ICATION IS AN INTEGRAL PART OF THE PLANT AND MACHINERY WHICH IS USED FOR THE MANUFACTU RE OR PRODUCTION OF AN ARTICLE OR THING WE ARE OF THE VIEW THAT THE ASSES SEE IS ENTITLED TO THE CLAIM OF ADDITIONAL DEPRECIATION. IN THE CIRCUMSTANCES THE ORDER OF THE LEARNED CIT(A) IS I.T.A. NO.675/MDS/2010 4 REVERSED AND THE ASSESSING OFFICER IS DIRECTED TO G RANT THE ASSESSEE ADDITIONAL DEPRECIATION ON THE ELECTRIFICATION AS CLAIMED. 7. GROUNDS 3 TO 3.3 OF THE ASSESSEES APPEAL ARE A GAINST THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE OF AD DITIONAL DEPRECIATION ON THE MACHINERY ACQUIRED AFTER 30-09-2006. AT THE TIME O F HEARING IT WAS FAIRLY AGREED THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 2151/MDS/2008 DATED 4-12- 2009 FOR THE ASSESSMENT YEAR 2005-05 WHEREIN IN PAR AS 4 TO 4.5 IT HAS BEEN HELD AS FOLLOWS : 4. GROUND NO.2 - REGARDING RESTRICTION OF ADDITIONAL DEPRECIATION TO 50%:- 4.1 THE ASSESSEE CLAIMED DEPRECIATION U/S 32(1)( IIA) AT THE RATE OF 15% OF THE COST IN RESPECT OF FIXED ASSETS ADDE D AFTER 30.9.2004. THE ASSESSING OFFICER RESTRICTED THE CLAIM TO 50% ON THE GROUND THAT THEASSESSEE HAS USED THE PLANT AND MACHINERY FOR L ESS THAN 180 DAYS DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. 4.2 ON APPEAL THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) HAS DECIDED THE ISSUE IN PARA 9 OF HIS ORDER AS UNDER:- 'HOWEVER IT IS NOTICED THAT THE CONCERNED SECOND PROVISO TO SECTIO 32(1) WAS AMENDED BY FINANCE ACT 2002 WIT H EFFECT FROM 01-04-2003 BY REPLACING THE WORDS 'WHERE AN ASSE T REFERRED TO IN CLAUSE (I) OR CLAUSE (II)' WITH THE WORDS 'WHERE AN ASSET REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA)'. ON CE THE SECOND PROVISO WHICH RESTRICTS DEPRECIATION IS MADE SPECIFICALL Y APPLICABLE TO ADDITIONAL DEPRECIATION DEALT WITH IN CLAUSE (IIA ) THROUGH AN AMENDMENT APPLICABLE FOR THE PERIOD UNDER CONSIDE RATION THE INTERPRETATION ON APPLICABILITY OF A PROVISO TO A SECTION OR SUB- SECTION ADVANCED BY THE ASSESSEE COMPANY WOULD MA KE SUCH AN AMENDMENT REDUNDANT. SUCH AN INTERPRETATION CANN OT ACCORDINGLY BE ACCEPTED. THE ASSESSING OFFICER'S ACTION IN RE STRICTING THE I.T.A. NO.675/MDS/2010 5 ADDITIONAL DEPRECIATION TO 50% OF THE AMOUNT COMP UTED AS PER THE PRESCRIBED RATE FOR ASSETS ACQUIRED AND PUT TO U SE FOR LESS THAN 180 DAYS IN ACCORDANCE WITH THE SECOND PROVISO T O SECTION 32(1) IS CORRECT AND THE APPEAL FILED BY THE ASSESSEE ON T HIS GROUND IS HEREBY DISMISSED. 4.3 W E HAVE HEARD THE LEARNED A.R. AS WEL L AS THE LEARNED D EPARTMEN TA L REP R ESENTAT I VE AND C ONSIDERED THE RELEVANT RECORDS . T HE MAIN CONTE NTION OF THE L EAR N ED C OUNSE L FOR THE ASSESSEE IS THAT THE SECOND PROVISO TO SECT ION 32(1) IS N O T APPLICABLE TO THE CLAIM OF THE ASSESSEE IN RESPECT OF DEPRECIATION ON NEW LY IN S T A LL ED PLANT AND MACH I NERY . C L AUSE ( I IA) OF SUB-SECT I ON ( 1) OF SECTION 3 2 AS I T STOOD AT THE R ELEVANT PERIOD OF TIME STIPULATES AN ADDIT I ONA L DEPRECIATION EQUAL TO 15% OF T HE ACTUAL COST OF T H E MACH IN ER Y OR PLANT ACQUIRED AND I NSTALLED AFTER 3 1 . 3.2002 TO BE A LL OWED AS DEDUCT ION UN DER C LAUS E (II A ) OF S UB -SEC TION ( 1 ) OF SECT I O N 3 2 OF THE INCOM E TA X A CT . TH US C L AUSE ( II A) MANDATES THAT ADD I T I O N A L DEP RECIATION IS AL L OWAB L E U N DER CL AUSE ( I I) OF SUB - SECTION (1) OF SECT I ON 32 . 4 . 4 THE S ECOND P R OV I SO TO SUB-SECTION (1) OF S E CTI ON 3 2 READS AS UNDE R: ' PROV I DED FURTHER THAT WHERE AN ASSET REFE R RED T O IN C L AUSE (I) OR CLAUS E (II) O R C LAUS E ( IIA ) A S THE CASE MAY BE IS ACQUIRED BY THE ASSESSEE DURING TH E P R EV I OU S Y EA R AND I S PUT T O USE FOR THE PURPOSES O F BU SINESS OR PROFESSION FOR A PE RI OD O F LESS T HA N ON E H U N DRED AND E I GHTY DAY S IN TH A T PRE VIOUS Y EAR THE DEDUCT I ON UN DER THIS SUB - SECTION I N RESPECT OF S UC H ASSET SHA L L BE RESTRICTED TO FIFTY PER C E NT OF TH E AMO U N T CALCULATED AT THE PERCENTAGE P RES C RIBED FOR AN ASSET U ND E R CLA U SE ( I ) O R C L AUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE. ' 4.5 FROM THE SECOND PROVISO IT IS CLEAR THAT FO R AVAILING THE FULL BENEFIT OF ADDITIONAL CLAIM OF DEPRECIATION AS PER CLAUSE (IIA) THE NEWLY INSTALLED MACHINERY OR PLANT / ASSET SHOULD BE PUT TO USE FOR THE PURPOSE OF BUSINESS FOR NOT LESS THAN 180 DAYS IN THE PREV IOUS YEAR. WE DO NOT FIND ANY SUBSTANCE OR MERIT IN THE CONTENTION OF THE AS SESSEE THAT THE SECOND PROVISO IS NOT APPLICABLE FOR THE ADDITIONAL DEPRE CIATION UNDER CLAUSE (IIA). WHEN THE PROVISO ITSELF STIPULATES THE ASSETS REFE RRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) THEN THERE IS NO SCOP E OF ANY AMBIGUITY OR DOUBT THAT THE SECOND PROVISO IS VERY MUCH APPLICABLE TO THE ASSETS REFERRED IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) OF SUB-S ECTION (1) OF SECTION 32. ACCORDINGLY WE DO NOT FIND ANY ERROR OR ILLEGALIT Y IN THE ORDER OF THE LOWER AUTHORITIES QUA THIS ISSUE. THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS UPHELD. I.T.A. NO.675/MDS/2010 6 AS IT IS NOTICED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES O WN CASE FOR THE ASSESSMENT YEAR 2005-06 AND AS NO FRESH FACTS HAVE BEEN PLACED BEFORE US TO DISTINGUISH THE SAID DECISION AND AS IT IS NOTICED THAT THE LEARNE D CIT(A) HAS FOLLOWED THE PRINCIPLE OF JUDICIAL DISCIPLINE IN FOLLOWING THE D ECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE RESPECTFU LLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL THE FIND ING OF THE LEARNED CIT(A) ON THIS ISSUE STANDS CONFIRMED. 8. GROUNDS 4 AND 4.1 OF THE ASSESSEES APPEAL ARE A GAINST THE ACTION OF THE LEARNED CIT(A) IN SUSTAINING A DISALLOWANCE OF ` 10 000/- BY APPLYING THE PROVISIONS OF SECTION 14A OF THE I.T.ACT 1961. AT THE TIME OF HEARING IT WAS FAIRLY AGREED BY BOTH SIDES THAT THE ISSUE IN THESE GROUND S WAS LIABLE TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATI ON AFTER APPLYING THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ AND BOYCE MFG. CO. LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX REPORTED IN 328 ITR 81 (BOM). IN THE CIRCUMSTANCES THIS ISSUE IS RESTORE D TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION BY APPLYING THE PRINCIP LES LAID DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. REFERRED TO SUPRA AS ALSO THAT OF ANY HIGHER JUDICIAL FORUM AFTER GRANT ING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CASE. I.T.A. NO.675/MDS/2010 7 9 IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 10. THE ORDER WAS PRONOUNCED IN THE COURT ON 04/02/ 2011. SD/- SD/- (ABARAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 04 TH FEBRUARY 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE